:: tax ::

Even if you have taken all the steps possible to reduce the amount of tax that you pay, you could still end up paying too much. If you have overpaid, there are ways in which you can obtain a tax rebate and get back the money that is due to you.

In the latest part of our “52 Ways to Save Tax” series, we look at how you pay less tax by claiming back overpaid money that you’re owed.

52 Ways to Save Tax – Part 31: Claim back the tax you have overpaid

There are a number of reasons why you might have paid too much tax. These include:

Your employer has deducted too much tax from your pay

You are on a low income and you have paid tax on savings interest

You sent a tax return and have paid too much tax

You have used your own money for your job (for example on work clothing or fuel)

You live in one country and have an income in another

You were on the wrong tax code for part of the tax year

Claiming back overpaid tax if you’re on PAYE

If too much tax was taken from your PAYE income, you may be able to claim a refund. How you make a claim depends on the tax year in which you paid too much tax. You can make a claim for a tax rebate back to the 2013/14 tax year.

2017/18 tax year – Tell HMRC if your tax code is wrong. If you are due a tax refund, your employer will give you this in your pay.

2016/17 tax year – HMRC will post you a P800 tax calculation if they know you have paid too much tax. You can either claim your refund online or you may receive a cheque.

2015/16 and earlier tax years – You may be able to claim online. You will need your employer’s PAYE number (this is on your P60) and details of any table income/benefits you received.

Claiming back overpaid tax if you sent a tax return

If you submit a tax return, you may still have paid too much tax. You may have:

Entered the wrong amount when you paid your tax bill

Made a chance to your tax return after you submitted it

Stopped being self-employed and have payments on account

If you submitted your tax return online you should log into your HMRC account and ‘request a repayment’ of the tax you have overpaid.

If you submitted a paper tax return, you should call or write to HMRC and explain why you think you paid too much tax. Include your Unique Taxpayer Reference when you write, and you may also need your bank details in order that your tax rebate can be paid directly into your UK bank account.

One of the major announcements in George Osborne’s 2015 Budget concerned the way in which savings interest would be taxed from April 2016. There are going to be significant changes to the tax regime on cash savings that will benefit the vast majority of taxpayers in the UK.

Keep reading to find out how putting you money in savings can reduce your tax bill and save you hundreds of pounds a year.

52 Ways to Save Tax – Part 12 : Put your money in a savings account

If you have some of your savings in a High Street savings account then you could be set to benefit from one of the new measures announced by the Chancellor in his 2015 Budget speech.

From April 2016, every basic rate taxpayer in the UK will be able to earn £1,000 in savings interest each year without having to pay any tax. Higher rate taxpayers will be able to earn up to £500 in savings interest.

The change is set to help around 28 million savers avoid tax on their money. It means that for around 95 per cent of savers, all the interest they receive on their savings will be paid without any tax being deducted – effectively giving a 20 per cent boost.

At present, banks and building societies deduct the basic tax rate of 20 per cent before paying your interest. If you don’t pay tax then you can register to receive your interest tax-free (using a R85 form) while if you’re a higher or additional rate taxpayer then you have to declare interest on your tax return and pay even more tax.

At present, if you are a basic rate taxpayer and you have £20,000 in a High Street savings account paying 2 per cent interest you would only earn £320 a year in interest. A higher-rate taxpayer would earn £240 and a top-rate taxpayer £220.

When the changes come into force in April 2016, you would earn £400 in interest.

The changes from April 2016

From the start of the tax year – April 6, 2016 – banks and building societies will stop automatically deducting interest from your savings. All the interest you receive will be paid tax-free.

If you earn below £16,800 a year you won’t have to pay any tax on savings interest. If you earn between £16,801 and £42,700 you will be allowed to earn £1,000 in interest without any tax being deducted.

If you earn between £42,701 to £150,000 you will have a £500 allowance and if you earn more than this you will have to pay tax on your savings interest.

If you are a basic taxpayer it effectively means that you can have up to around £70,000 in an easy-access savings account (assuming a current interest rate of around 1.35 per cent) and earn itnerest without paying any tax.

By investing more of your cash in savings accounts from April it means that you will avoid the 20 per cent deduction and help you to reduce your tax bill.

Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than £325,000 when they die. Currently charged at a rate of 40 per cent, an inheritance tax bill on a large estate can run into tens or even hundreds of thousands of pounds.

However, there are ways of reducing your inheritance tax liability by making gifts while you are alive. In the next part of our series ‘52 Ways to Save Tax’ we look how you can pay less tax by giving money away. Keep reading to find out more.

52 Ways to Save Tax – Part 11: Give money away

There are several ways of making gifts and reducing your potential tax bill. These include:

Giving small gifts

In each tax year, you can gift up to £250 to as many people as you like, completely free of Inheritance Tax. Wedding gifts and individual gifts up to this amount can be given to as many different people as you wish.

Remember that you can’t give a larger sum of money and claim exemption for the first £250.

Give up to £3,000 every year

As well as the individual £250 gift limit you can also give away £3,000 in total each tax year – although you can’t combine these two allowances with gifts to the same person.

The estate won’t pay any Inheritance Tax on up to £3,000 worth of gifts given away by the deceased in each tax year (6 April to 5 April). This is called your ‘annual exemption’.

If you don’t use your annual exemption you can carry it over into the next tax year, but the maximum exemption is £6,000.

Give a wedding gift

Wedding or civil partnership ceremony gifts are also exempt from inheritance tax – although there are limits to this:

Parents can each give cash or gifts worth up to £5,000

Grandparents and great grandparents can each give cash or gifts worth up to £2,500

Anyone else can give cash or gifts worth £1,000

In order to qualify for this exemption you will need to give this gift (or promise to give it) on or shortly before the date of the wedding or civil partnership ceremony.

Give regular gifts from your income

There is no Inheritance Tax to pay on gifts from the deceased’s income (after they paid tax) as long as they had enough money to maintain their normal lifestyle. Such gifts may include:

If you sell an asset for a profit then you may have to pay tax on the money that you make. This is called ‘Capital Gains Tax’ and could leave you with a sizeable tax bill if you sell shares, antiques or investment property for a profit.

In the next part of our series ‘52 Ways to Save Tax’ we look how you can pay less tax by using your annual Capital Gains Tax allowances. Keep reading to find out more.

52 Ways to Save Tax – Part 10: Use your Capital Gains Tax allowance

Capital Gains Tax (CGT) is the tax that you pay on the profit that you make when you dispose of an asset. Remember that any tax that is due is paid on the ‘gain’, not the whole amount you sell the asset for.

For example, you buy a painting for £10,000 and sell it for £50,000. The ‘gain’ you make is £40,000 and any CGT that is due would be paid on this amount.

It is not just selling an asset that creates a potential Capital Gains Tax liability. You may also have to pay tax if you gift an item to someone else, swap it for another asset or if you got compensated for it (for example if you received an insurance payout because an asset was destroyed).

When you may have to pay Capital Gains Tax

You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell/dispose of a personal possession for £6,000 or more. Assets on which CGT may be payable include:

Jewellery

Paintings

Shares not held in an ISA or PEP

Antiques

Stamps and coins

Property that is not your main residence

When you don’t pay Capital Gains Tax

There are certain items that are exempt from Capital Gains Tax and certain annual exemptions that you can use. These will help you to dispose of an asset on which you have made a gain without having to pay any tax.

You don’t pay CGT on:

NISAs, ISAs or PEPs

Betting, lottery or pools winnings

UK Government gilts

Premium bonds

Personal possessions with a lifespan of less than 50 years

Most gifts to your husband, wife, civil partner or a charity

Your car – unless you’ve used it for business

You also have an annual Capital Gains Tax allowance, called the Annual Exempt Amount. This means that you only have to pay Capital Gains Tax on your overall gains above your tax-free allowance which, in the tax year 2014/15, was £11,000.

Working out your gains

You won’t pay any Capital Gains Tax if your total taxable gains are below your annual Capital Gains Tax allowance (£11,000 in the 2014/15 tax year). To work out what your gains are you should:

Work out the gain you have made on each asset that you have disposed of in the last tax year (shares, personal possessions etc)

Add together the gains to make a total

Deduct any allowable losses

If your total gains are below your allowance you won’t have any Capital Gains Tax to pay.

If your gain is above the CGT allowance then you will have some tax to pay. The basic rate of CGT is 18 per cent although higher rate taxpayers – which may include you if your gains added to your other income carry you into the higher band – pay 28 per cent.

Taxes are a fact of life. But, while you may not be able to avoid paying tax on your income, your shopping or your property, you may be able to earn tax-free interest on your savings.

If you’re a basic rate taxpayer, you’re probably paying 20 per cent tax on your savings interest. And, if you are a higher earner you may be losing 40 or 50 per cent of your savings returns to tax. If you want to ensure you’re getting the very best return on your savings it is vital that they are tax-efficient. Our guide gives you three great tips to paying less tax on your savings.

Maximise your ISA contributions

On 6 April 1999, the government introduced the Individual Savings Account (ISA). This type of account lets you save a certain amount of money each year and you’ll pay no tax on your returns.

In the 2012/13 tax year, the individual ISA allowance is £11,280. You can save up to £5,640 as cash and the remainder in stocks and shares. And, crucially, any money that you place in an ISA will earn gross rather than net interest. This ensures you don’t lose 20 per cent (or 40/50 per cent if you are a higher rate taxpayer) of your interest in tax.

From April 2013 the individual ISA limit rises to £5,760.

There are hundreds of ISAs available and, even if you don’t have the maximum to save, they are a great way of sheltering your savings from tax. Always consider using your ISA allowance before you put your savings elsewhere.

Register for gross interest if you’re not a taxpayer

If you’re not a UK taxpayer, you shouldn’t be paying tax on your savings interest. So, if you earn less than the threshold for paying tax – around £155 per week for under 65s – you should receive ‘gross’ rather than ‘net’ interest.

To do this, you need to speak to your bank or building society and complete a R85 form. This will register you for gross interest and ensure no tax is taken off before you receive your interest.

Take advantage of your partner or child’s tax status

If you have a partner than pays a lower rate of tax then you – perhaps they are a non-taxpayer – you could save your money in your partner’s name in order to benefit from paying less tax.

For example, you may be a higher-rate taxpayer and pay 40 per cent of your savings interest in tax. If your partner is a basic-rate taxpayer and only pays 20 per cent, you can save your money in your partner’s name and only pay 20 per cent tax.

Bear in mind that if you do this your savings will be in your partner’s sole name. Make sure you understand the implications of this before you decide on this course of action.

Another way to reduce the tax you pay on your savings is to open an account in your child’s name. If they earn less than the tax-free allowance then you can build up their savings without any tax being deducted. As above, your child will need to sign a R85 form (or you will need to sign it on their behalf).

You should remember that such an account has to be opened only with the express purpose of saving for your child. There are also restrictions on how much you can gift to your child without paying tax.

The way that you pay tax and National Insurance depends on your employment status. As well as determining how you pay your tax, whether you are employed or self-employed also affects your employment rights and what benefits you may be entitled to.

Our guide will help you work out whether you are employed or self-employed and how this may affect how you pay tax.

Are you employed or self-employed?

The easiest way to work out your employment status is to answer these questions:

You are probably employed if:

You have to do the work yourself

You have to work a fixed amount of hours

You are paid a set amount depending on the hours that you work

You get paid for working overtime

You are told when, where and how you do your work

You work for someone who is in charge of what you do

You are probably self-employed if:

You take responsibility for the success or failure of the business

You provide the equipment needed to do your work

You decide who to hire to help you with your work

You have a number of clients/customers simultaneously

You decide when, where and how you do your work

Sometimes you may be both employed and self-employed at the same time. For example, you may work during the day and then run your own business from home in the evenings and at weekends.

Ultimately, whether you are employed or self-employed depends upon what your contract says and the facts of your working arrangements. Sometimes the courts have to get involved to determine the basis of your employment; for example after a dispute about benefits.

Paying tax and National Insurance if you are self employed

If you are self employed, you are responsible for paying both tax and National Insurance contributions. You have to let HM Revenue and Customs (HMRC) know that you are self employed – there are penalties if you don’t register as self employed – and you must fill in an annual Self Assessment tax return.

Paying tax and National Insurance if you are employed

If you work on an employed basis, it is your employer who is responsible for paying your tax and National Insurance contributions on your behalf. They do this through the Pay as you Earn (PAYE) system.

If you are employed you are also entitled to a further range of benefits. For example, you are entitled to sick pay, Jobseeker’s Allowance (if you lose your job), paternity and maternity leave and a State Pension when you retire.